Capital Markets: The Driving Force Behind Tanzania’s Economic Transformation

By Javed Virjee, Head of Internal Audit, iTrust Finance Limited

Tanzania is at a pivotal moment in its economic evolution, with its capital markets emerging as a powerful catalyst for growth and transformation.

Underpinned by economic growth, political stability and a conducive regulatory environment, the Dar es Salaam Stock Exchange (DSE) and the broader capital markets ecosystem have positioned themselves as essential drivers for the nation’s journey toward middle-income status.

The numbers tell a compelling story of sustained momentum and adaptability. Tanzania’s capital markets closed 2024 on a strong note, with the DSE recording an impressive 22.23% growth, outperforming several larger African markets including South Africa (9.37%) and Mauritius (14.75%).

This performance placed Tanzania among the continent’s top-performing exchanges, delivering significant value to both domestic and international investors.

As at July 2025, the market capitalization has grown to over Sh 20.7 trillion, showing consistent week-on-week growth from Sh 17.8 trillion in December 2024. This impressive performance demonstrates the growing confidence of local investors. It also reflects a mature market, capable of weathering external volatilities and maintaining steady expansion.

Government initiatives have been instrumental in fostering this resilience. The regulatory environment under the Capital Markets and Securities Authority (CMSA) has supported innovation and maintained investor protection, with the Tanzania Capital Markets Tribunal (CMT) further reinforcing investor protection by providing a mechanism of specialized dispute resolution.

The introduction of several capital market products has increased investment opportunities including the landmark Samia Infrastructure Bond, which raised Sh 323 billion against a target of Sh 150 billion, demonstrating extraordinary investor appetite and confidence.

Tanzania’s financial landscape is witnessing remarkable expansion, with Collective Investment Schemes (CIS) emerging as a success story. These schemes have seen their combined Assets Under Management (AUM) nearly double from Sh 1.8 trillion in January 2024 to Sh 3.4 trillion in June 2025.

Beyond just the value of assets, the sector’s infrastructure has also expanded significantly. The number of CIS offerings has more than doubled, growing from 7 schemes to 16 within the same timeframe.

Correspondingly, the number of fund managers overseeing these investments has tripled, increasing from 2 to 6. This expansion signals both the increasing sophistication of Tanzania’s financial markets and a growing financial literacy among its citizens, who are increasingly engaging with these investment opportunities.

Employment and entrepreneurship

Beyond being mere investment platforms, capital markets are powerful engines of job creation and entrepreneurial growth. They facilitate investments that can generate substantial employment opportunities across various sectors.

This is because they provide businesses with better access to the long-term financing needed to expand operations, invest in technology, and develop sustainable business models.

Traditional banking may often focus on short-term credit facilities, leaving a gap for medium and long-term capital needs. Capital markets can fill this void by providing businesses with the capital necessary for research and development, infrastructure investments, and strategic expansion initiatives.

Effective corporate governance is paramount for investor confidence and market integrity, ensuring transparent and efficient fund management. Market participation also promotes entrepreneurship through improved corporate governance standards.

Companies seeking to access the capital markets must adhere to transparency requirements, financial reporting standards, and governance practices that ultimately strengthen their operations. This discipline creates a virtuous cycle where better-governed companies attract more investment, leading to further growth and employment opportunities.

Infrastructure development

The success of infrastructure bonds illustrates this evolution most clearly. The Samia Infrastructure Bond demonstrates how financial markets can address infrastructure financing gaps.

This bond, designed to support the Tanzania Rural and Urban Roads Agency (TARURA), addresses liquidity challenges faced by local contractors while ensuring continuous project implementation independent of traditional budget cycles. The bond’s 215.4% oversubscription signals strong domestic investor confidence and highlights the market’s capacity to finance national development priorities.

The infrastructure bond model represents a shift in project financing. Rather than relying solely on government budgets or foreign borrowing, Tanzania is leveraging domestic savings channeled through capital markets.

This approach reduces foreign exchange risk, keeps interest payments within the domestic economy, and builds local institutional capacity for project financing. The growth in Collective Investment Schemes (CIS) provides additional channels for mobilizing domestic resources. With eight registered CIS managing Sh 3.4 trillion (as at June 2025) in combined assets, these instruments can be directed toward infrastructure-focused investments, creating diversified funding sources for development projects.

The multiplier effects of such successes extend beyond immediate project financing; local contractors gain access to working capital, reducing their dependence on advance payments and enabling them to compete more effectively with foreign firms. This creates employment opportunities, builds technical capacity, and strengthens the domestic construction sector.

The capital market’s ability to convert savings into long-term investment capital is a powerful form of domestic resource mobilization as the growth of CIS directly aggregates savings for investment.

The government’s strong fiscal performance, with domestic revenue collection reaching 102.4 percent of its target in Q3 2024/25, complements capital market efforts by ensuring overall financial stability. Policies supporting capital market participation, coupled with investor education, can further unlock significant domestic savings for national development.

Policy recommendations

Tanzania’s capital markets have shown impressive growth, but strategic policy interventions can unlock even greater potential. Based on current performance and comparative analysis with regional markets, key areas warrant attention.

Regulatory improvements and market structure

The regulatory framework requires modernization to support market growth while maintaining investor protection. The establishment of an SME-focused trading segment similar to India’s Bombay Stock Exchange SME platform could significantly expand market participation.

While SMEs are significant drivers of credit growth, stringent DSE listing requirements and high costs deter them from direct capital market access. Bridging this gap through tailored listing requirements and simplified access is crucial for the market to fully serve its potential as a long-term financing engine for SMEs.

Cross-border investment facilitation represents another priority area. As part of the East African Community integration process, harmonizing listing requirements and enabling cross-border trading would expand investor bases and improve market liquidity.

Current regional integration efforts remain limited, with only five companies cross-listed on the DSE. These are East African Breweries, Jubilee Holdings, KCB Group, Kenya Airways, and Nation Media Group. For the past decade, trading activity in these cross-listed shares has been almost negligible.

Fostering financial inclusion through education

Deepening Tanzania’s capital markets requires focused outreach and education efforts targeting underserved groups such as women, youth, MSMEs, and smallholder farmers, in line with the Third National Financial Inclusion Framework (NFIF-3 2023-2028).

These segments often face barriers like limited financial literacy, affordability challenges, and communal norms that restrict their participation. Tailored awareness programs are vital for building a culture of investment and empowering these groups to engage confidently with capital markets.

To broaden reach, partnerships with commercial banks, licensed market intermediaries, and mobile money operators are essential. Tanzania`s robust mobile money infrastructure for instance, offers an effective channel to extend capital market products beyond urban centres into rural areas where many MSMEs and farmers operate. Leveraging digital investment platforms can simplify investment processes, reduce costs, and provide real-time financial education.

Tax policy optimization

Tax incentives require careful calibration to encourage market development without creating distortions. The current capital gains tax exemption on listed securities has proven effective in driving market activity, however, extending corporate tax incentives for newly listed companies could encourage more IPOs.

Singapore’s success with extended tax incentives and listing cost subsidies provides a relevant model for Tanzania to consider as a potential roadmap. Tanzania’s tax policy framework has also played a crucial role in stimulating capital market growth. The tax exemption granted to CIS (as cited in Section 86 and the Second Schedule of the Income Tax Act) has been a game-changer, encouraging wider participation by making these investment vehicles more attractive.

By exempting CIS from income tax, investors benefit from enhanced returns and reduced tax drag, which has contributed to the rapid growth of CIS assets. This tax treatment not only incentivizes savings but also channels domestic capital into productive investments, supporting market depth and liquidity. Maintaining and possibly expanding such tax incentives will be vital to sustaining momentum and broadening financial inclusion.

A transformed future

Tanzania’s capital markets are positioned to play an even more central role in the country’s economic transformation. The combination of strong regulatory foundations, innovative financial instruments, and growing investor base creates a platform for sustained growth.

The challenges ahead are well within Tanzania’s capability to address. The market’s demonstrated resilience, the government’s commitment to supportive policies, and the private sector’s innovative capacity provide a solid foundation for continued progress.